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LLOY Lloyds Banking Group Plc

69.56
1.24 (1.81%)
14 Mar 2025 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Lloyds Banking Group Plc LSE:LLOY London Ordinary Share GB0008706128 ORD 10P
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  1.24 1.81% 69.56 69.50 69.54 69.76 67.80 68.18 102,631,817 16:35:09
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Commercial Banks, Nec 18B 4.42B 0.0729 9.53 41.41B

Lloyds Banking Group PLC 1st Quarter Results (5346D)

30/04/2013 7:02am

UK Regulatory


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TIDMLLOY

RNS Number : 5346D

Lloyds Banking Group PLC

30 April 2013

Lloyds Banking Group plc

Q1 2013 Interim Management Statement

30 April 2013

 
                                                 BASIS OF PRESENTATION 
 This report covers the results of Lloyds Banking Group plc (the 
  Company) together with its subsidiaries (the Group) for the three 
  months to 31 March 2013. 
 Statutory basis 
  Statutory results are set out on pages 12 and 13. However, a number 
  of factors have had a significant effect on the comparability of 
  the Group's financial position and results. As a result, comparison 
  on a statutory basis of the 2013 results with 2012 is of limited 
  benefit. 
  Underlying basis 
   In order to present a more meaningful view of business performance, 
   the results of the Group and divisions are presented on an underlying 
   basis. The key principles adopted in the preparation of the underlying 
   basis of reporting are described below. 
    *    In order to reflect the impact of the acquisition of 
         HBOS, the following items have been excluded: 
 
 
    *    the amortisation of purchased intangible assets; and 
 
 
    *    the unwind of acquisition-related fair value 
         adjustments. 
 
 
    *    The following items, not related to acquisition 
         accounting, have also been excluded from underlying 
         profit: 
 
        *    the effects of asset sales, liability managem    *    payment protection insurance provision; 
       ent and 
             volatile items; 
                                                              *    insurance gross up; 
 
        *    volatility arising in insurance businesses; 
                                                              *    certain past service pensions credits in respect of 
                                                                   the Group's defined benefit pension schemes; and 
        *    Simplification costs; 
 
                                                              *    other regulatory provisions. 
        *    Verde costs; 
 The financial statements have been restated following the implementation 
  of IAS 19R Employee Benefits and IFRS 10 Consolidated Financial 
  Statements with effect from 1 January 2013. Further details are 
  shown on page 12. 
 
  To enable a better understanding of the Group's core business trends 
  and outlook, certain income statement, balance sheet and regulatory 
  capital information is analysed between core and non-core portfolios. 
  The non-core portfolios consist of businesses which deliver below-hurdle 
  returns, which are outside the Group's risk appetite or may be 
  distressed, are subscale or have an unclear value proposition, 
  or have a poor fit with the Group's customer strategy. Project 
  Verde is included in core portfolios. 
 
  The Group's core and non-core activities are not managed separately 
  and the preparation of this information requires management to 
  make estimates and assumptions that impact the reported income 
  statements, balance sheet, regulatory capital related and risk 
  amounts analysed as core and as non-core. The Group uses a methodology 
  that categorises income and expenses as non-core only where management 
  expect that the income or expense will cease to be earned or incurred 
  when the associated asset or liability is divested or run-off, 
  and allocates operational costs to the core portfolio unless they 
  are directly related to non-core activities. This results in the 
  reported operating costs for the non-core portfolios being less 
  than would be required to manage these portfolios on a stand-alone 
  basis. Due to the inherent uncertainty in making estimates, a different 
  methodology or a different estimate of the allocation might result 
  in a different proportion of the Group's income or expenses being 
  allocated to the core and non-core portfolios, different assets 
  and liabilities being deemed core or non-core and accordingly a 
  different allocation of the regulatory effects. 
 
  Unless otherwise stated income statement commentaries throughout 
  this document compare the three months to 31 March 2013 to the 
  three months to 31 March 2012, and the balance sheet analysis compares 
  the Group balance sheet as at 31 March 2013 to the Group balance 
  sheet as at 31 December 2012. 
---------------------------------------------------------------------------------------------------------------------- 
 

FORWARD LOOKING STATEMENTS

This announcement contains forward looking statements with respect to the business, strategy and plans of the Lloyds Banking Group, its current goals and expectations relating to its future financial condition and performance. Statements that are not historical facts, including statements about the Group or the Group's management's beliefs and expectations, are forward looking statements. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will or may occur in the future. The Group's actual future business, strategy, plans and/or results may differ materially from those expressed or implied in these forward looking statements as a result of a variety of risks, uncertainties and other factors, including, but not limited to, UK domestic and global economic and business conditions; the ability to derive cost savings and other benefits, including as a result of the Group's Simplification programme; the ability to access sufficient funding to meet the Group's liquidity needs; changes to the Group's credit ratings; risks concerning borrower or counterparty credit quality; instability in the global financial markets, including Eurozone instability and the impact of any sovereign credit rating downgrade or other sovereign financial issues; market-related risks including, but not limited to, changes in interest rates and exchange rates; changing demographic and market-related trends; changes in customer preferences; changes to laws, regulation, accounting standards or taxation, including changes to regulatory capital or liquidity requirements; the policies and actions of governmental or regulatory authorities in the UK, the European Union, or jurisdictions outside the UK in which the Group operates, including other European countries and the US; the implementation of the draft EU crisis management framework directive and banking reform following the recommendations made by the Independent Commission on Banking; the ability to attract and retain senior management and other employees; requirements or limitations imposed on the Group as a result of HM Treasury's investment in the Group; the ability to complete satisfactorily the disposal of certain assets as part of the Group's EC state aid obligations; the extent of any future impairment charges or write-downs caused by depressed asset valuations, market disruptions and illiquid markets; the effects of competition and the actions of competitors, including non-bank financial services and lending companies; exposure to regulatory scrutiny, legal proceedings, regulatory investigations or complaints, and other factors. Please refer to the latest Annual Report on Form 20-F filed with the US Securities and Exchange Commission for a discussion of certain factors together with examples of forward looking statements. The forward looking statements contained in this announcement are made as at the date of this announcement, and the Group undertakes no obligation to update any of its forward looking statements.

KEY HIGHLIGHTS

'STRONG PERFORMANCE IN THE FIRST THREE MONTHS OF 2013'

'We made substantial progress again in the first quarter. Underlying and statutory profits improved significantly, and our core loan book returned to growth earlier than expected. Margin increased, and costs and impairments continued to fall rapidly, with this progress underpinned by a further strengthening of our balance sheet. We are delivering real benefits for customers, colleagues and shareholders by investing behind our simple, UK customer-focused retail and commercial banking model, and are now further ahead in our plan to transform the Group, as reflected in the enhanced guidance for costs and capital we are giving today'.

António Horta-Osório

Group Chief Executive

Substantial increase in Group underlying and statutory profit

   --     Group underlying profit of GBP1,479 million (Q1 2012: GBP497 million) 
   --     Statutory profit before tax of GBP2,040 million (Q1 2012: GBP280 million) 

-- Total underlying income of GBP4,889 million up 3 per cent, includes GBP394 million gain relating to the sale of shares in St. James's Place

   --     Group net interest margin increased to 1.96 per cent; on track to meet guidance for 2013 

-- Costs further reduced by 6 per cent to GBP2,408 million; Simplification run-rate savings increased to over GBP1.0 billion

   --     40 per cent reduction in impairment charge to GBP1,002 million (Q1 2012: GBP1,657 million) 

Core returns further improved and increased core underlying profit

   --     Core return on risk-weighted assets increased from 2.61 per cent to 3.20 per cent 

-- Core underlying profit increased by 19 per cent to GBP1,871 million (Q1 2012: GBP1,576 million)

   --     Core net interest margin of 2.34 per cent improved by 2 basis points 
   --     4 per cent reduction in core costs to GBP2,269 million (Q1 2012: GBP2,353 million) 

-- Core loans and advances increased by GBP0.6 billion in the first quarter of 2013, ahead of guidance

Strong balance sheet; continue to be confident in capital position

   --     Core tier 1 capital ratio increased to 12.5 per cent (31 December 2012: 12.0 per cent) 

-- 60 basis points of underlying pro forma fully loaded CRD IV capital generation in the first quarter, offsetting IAS 19R impact; estimated pro forma fully loaded CRD IV core tier 1 ratio unchanged at 8.1 per cent

-- Continued capital-accretive non-core asset reduction of GBP9 billion on a constant currency basis, GBP6 billion after currency effects. Non-core assets now GBP92.1 billion (31 December 2012: GBP98.4 billion)

-- Sale of Spanish retail operations agreed in April, which will lead to a further reduction of GBP1.5 billion in non-core assets

-- Core loan to deposit ratio of 100 per cent; Group loan to deposit ratio of 119 per cent; deposit growth of 1 per cent in quarter

Supporting customers and the UK economic recovery

   --     Commercial Banking core loan book returning to growth 

-- Positive SME net lending growth of 4 per cent in the last twelve months, against market contraction of 4 per cent

-- Over GBP350 million committed to manufacturing in the first quarter of 2013; on track to exceed GBP1 billion target

-- Supported over 13,000 first-time buyers in the first quarter of 2013; committed to helping around 60,000 in 2013

-- Continue to address existing legacy issues; PPI complaints falling in line with expectations; progressing IPO of Verde

Increased cost reduction targets for 2013 and 2014; expect fully loaded core tier 1 ratio above 10 per cent by end 2014

-- On track to meet 2013 guidance, including a Group net interest margin of around 1.98 per cent in 2013

-- Now targeting further reduction in total costs to around GBP9.6 billion in 2013, compared to previous target of GBP9.8 billion

   --     Expect total costs to be around GBP9.15 billion in 2014, assuming Verde IPO in mid 2014 

-- Expect our estimated pro forma fully loaded CRD IV core tier 1 ratio to be above 9 per cent by end of 2013 and above 10 per cent by end of 2014

UNDERLYING BASIS CONSOLIDATED INCOME STATEMENT

 
                                       Three        Three                Three 
                                      months       months               months 
                                       ended        ended                ended 
                                      31 Mar       31 Mar               31 Dec 
                                        2013      2012(1)  Change      2012(1)  Change 
                                 GBP million  GBP million       %  GBP million       % 
 
Net interest income                    2,553        2,633     (3)        2,545 
Other income                           2,422        2,203      10        2,040      19 
Insurance claims                        (86)        (108)      20         (30) 
                                 -----------  -----------          ----------- 
Total underlying income                4,889        4,728       3        4,555       7 
Total costs                          (2,408)      (2,574)       6      (2,587)       7 
Impairment                           (1,002)      (1,657)      40      (1,278)      22 
                                              -----------          ----------- 
Underlying profit                      1,479          497     198          690     114 
Asset sales and volatile 
 items                                 1,073          290                1,946    (45) 
Simplification and Verde 
 costs                                 (409)        (269)    (52)        (515)      21 
Legacy items                               -        (375)              (2,000) 
Other items                            (103)          137                (120)      14 
Profit before tax - statutory          2,040          280                    1 
Taxation                               (500)        (277)    (81)        (352)    (42) 
                                 -----------  -----------          ----------- 
Profit (loss) for the period           1,540            3                (351) 
                                 -----------  -----------          ----------- 
 
Earnings (loss) per share               2.2p         0.0p    2.2p       (0.5)p    2.7p 
Banking net interest margin            1.96%        1.95%     1bp        1.94%     2bp 
Average interest-earning 
 assets                           GBP520.3bn   GBP558.8bn     (7)   GBP529.9bn     (2) 
Impairment charge as a % 
 of average advances                   0.80%        1.14%  (34)bp        0.96%  (16)bp 
Return on risk-weighted assets         1.96%        0.57%   139bp        0.87%   109bp 
 

BALANCE SHEET - KEY RATIOS

 
                                                           At          At 
                                                       31 Mar      31 Dec  Change 
                                                         2013        2012       % 
 
Loans and advances to customers excluding 
 reverse repos(2)                                  GBP508.8bn  GBP512.1bn     (1) 
Core - loans and advances to customers excluding 
 reverse repos(2)                                  GBP425.9bn  GBP425.3bn 
Customer deposits excluding repos(3)               GBP428.2bn  GBP422.5bn       1 
Core - customer deposits excluding repos(3)        GBP424.7bn  GBP419.1bn       1 
Loan to deposit ratio(4)                                 119%        121%   (2)pp 
Core loan to deposit ratio(4)                            100%        101%   (1)pp 
Non-core assets                                     GBP92.1bn   GBP98.4bn     (6) 
Wholesale funding                                  GBP162.1bn  GBP169.6bn     (4) 
Wholesale funding <1 year maturity                  GBP50.9bn   GBP50.6bn       1 
Risk-weighted assets(5)                            GBP302.5bn  GBP310.3bn     (3) 
Core tier 1 capital ratio(5)                            12.5%       12.0%   0.5pp 
Estimated pro forma fully loaded CRD IV core 
 tier 1 ratio(5)                                         8.1%        8.1% 
Net tangible assets per share(1)                        54.9p       51.9p    3.0p 
 
 
(1)  Restated to reflect the implementation of IAS 19R and IFRS 10. 
      See page 12. 
(2)  Excludes reverse repos of GBP3.2 billion (31 December 2012: GBP5.1 
      billion) (all core). 
(3)  Excludes repos of GBP3.0 billion (31 December 2012: GBP4.4 billion) 
      (all core). 
(4)  Loans and advances to customers excluding reverse repos divided 
      by customer deposits excluding repos. 
(5)  31 December 2012 comparatives have not been restated to reflect 
      the implementation of IAS 19R and IFRS10. 
 

UNDERLYING BASIS CONSOLIDATED INCOME STATEMENT - CORE AND NON-CORE

 
                                       Three        Three                Three 
                                      months       months               months 
                                       ended        ended                ended 
                                      31 Mar       31 Mar               31 Dec 
Core                                    2013      2012(1)  Change      2012(1)  Change 
                                 GBP million  GBP million       %  GBP million       % 
 
Net interest income                    2,452        2,450                2,487     (1) 
Other income                           2,265        1,999      13        1,932      17 
Insurance claims                        (86)        (108)      20         (30) 
                                 -----------  -----------          ----------- 
Total underlying income                4,631        4,341       7        4,389       6 
Total costs                          (2,269)      (2,353)       4      (2,341)       3 
Impairment                             (491)        (412)    (19)        (568)      14 
                                 -----------  -----------          ----------- 
Underlying profit                      1,871        1,576      19        1,480      26 
                                 -----------  -----------          ----------- 
 
Banking net interest margin            2.34%        2.32%     2bp        2.33%     1bp 
Impairment charge as a % of 
 average advances                      0.51%        0.36%    15bp        0.50%     1bp 
Return on risk-weighted assets         3.20%        2.61%    59bp        2.47%    73bp 
 
 
(1)  Restated to reflect the implementation of IAS 19R and IFRS 10. 
      See page 12. 
 
 
                                    Three        Three                 Three 
                                   months       months                months 
                                    ended        ended                 ended 
                                   31 Mar       31 Mar                31 Dec 
Non-core                             2013         2012   Change         2012  Change 
                              GBP million  GBP million        %  GBP million       % 
 
Net interest income                   101          183     (45)           58      74 
Other income                          157          204     (23)          108      45 
Insurance claims                        -            -                     - 
                              -----------  -----------           ----------- 
Total underlying income               258          387     (33)          166      55 
Total costs                         (139)        (221)       37        (246)      43 
Impairment                          (511)      (1,245)       59        (710)      28 
                              -----------  -----------           ----------- 
Underlying loss                     (392)      (1,079)       64        (790)      50 
                              -----------  -----------           ----------- 
 
Banking net interest margin         0.44%        0.70%   (26)bp        0.37%     7bp 
Impairment charge as a % of 
 average advances                   2.03%        3.71%  (168)bp        2.80%  (77)bp 
 

The basis of preparation of the core and non-core income statements is set out on the inside front cover.

GROUP CHIEF EXECUTIVE'S OVERVIEW

In the first three months of 2013 the Group delivered a substantial increase in both underlying and statutory profit. We continue to invest in our simple, lower risk, customer focused UK retail and commercial banking business model which will allow us to become the best bank for customers and further deliver on our commitment to support the UK economy, as well as delivering strong stable and sustainable results for our shareholders.

Improved Group statutory profit performance and core lending returning to growth

The Group delivered a substantial increase in statutory profit before tax to GBP2,040 million (Q1 2012: GBP280 million) and an underlying profit before tax of GBP1,479 million (Q1 2012: GBP497 million). The increase was driven by higher income, which includes the gain of GBP394 million relating to the sale of shares in St. James's Place, continued improvements in cost efficiency and a further substantial reduction in impairment charges. Returns in our core business improved further and we are now seeing signs of core lending returning to sustainable growth.

Further capital-accretive non-core reductions of GBP9 billion on a constant currency basis, GBP6 billion after currency effects, were made in the first quarter. These taken together with our improved profitability helped strengthen the Group's core tier 1 capital ratio to 12.5 per cent (31 December 2012: 12.0 per cent). The Group's estimated pro forma fully loaded CRD IV core tier 1 ratio was unchanged at 8.1 per cent, with underlying capital generation of 60 basis points offsetting the changes to pension accounting implemented with effect from 1 January (IAS 19R). We continue to be confident in our capital position given our strongly capital generative core business and continued progress in releasing capital and reducing risk through non-core asset disposals.

Our success in reducing non-core assets and increasing deposits has led to a further improvement in the loan to deposit ratio to 119 per cent, ahead of our original 2012 guidance. The core loan to deposit ratio is now 100 per cent.

Supporting our customers and the UK economy

The Group actively supports sustainable growth in the UK economy through the focused range of products and services we provide to our business and personal customers, as well as through partnerships we have built with industry and Government. The UK Government's Funding for Lending Scheme supports the UK economic recovery and we have committed in excess of GBP18 billion in gross funds to customers through the scheme since September 2012.

In support of the SME sector we increased our net lending by 4 per cent, year on year, compared to the market which saw a further contraction. Meanwhile in support of mid-market clients, we launched our Mid-Corporate Client Charter, which aims to position Lloyds Bank Commercial Banking firmly as the best bank for business, making a clear statement that we are well placed to help the UK's mid-corporates achieve their ambitions. The Commercial Banking core loan book returned to growth in the first three months of 2013, driving an increase in the core Group loan book. This was ahead of our previously committed Group target for the second half of 2013.

For our UK Retail customers, we lent GBP1,500 million to over 13,000 first time buyers in the first quarter. We support the UK Government's new Help-To-Buy scheme, believing it will provide a much needed boost to the UK housing market and, most importantly, help to address the issue of accessibility.

Verde update

As announced on 24 April 2013, following the withdrawal of the Co-Operative Group from the sale process we now intend to divest Verde through an IPO, subject to regulatory and EC approval, having maintained this option throughout the process to ensure best value for shareholders and certainty for customers and colleagues. The Group has already made good progress in the creation of Verde as a stand-alone bank with a strong management team already in place and good progress made in creating segregated IT systems on the proven Lloyds Banking Group platform. Detailed plans are in place for a rebranding of the business as TSB which will be visible on the High Street during the summer of this year, at which point the TSB Bank (Verde) will operate as a separate business within Lloyds Banking Group.

GROUP CHIEF EXECUTIVE'S OVERVIEW (continued)

Guidance

We remain confident in achieving our existing guidance, including for the Group banking net interest margin to be around 1.98 per cent for the full year 2013, and for a substantially reduced 2013 impairment charge. We now expect total costs to be around GBP9.6 billion in full year 2013, down from our previous guidance of GBP9.8 billion, as a result of the deconsolidation of St. James's Place and further cost savings. In addition, given the progress we have made in achieving cost efficiencies, and assuming a Verde IPO in mid 2014, we now expect costs to be around GBP9.15 billion for the full year 2014. This represents a reduction of around GBP2 billion since 2010 and around GBP1 billion more than the original strategic review target.

We continue to expect that our non-core assets will be less than GBP70 billion by the end of 2014, with non-core non-retail assets being less than GBP35 billion, and expect an estimated pro forma fully loaded CRD IV core tier 1 ratio of above 9 per cent by the end of 2013 and above 10 per cent by the end of 2014.

FINANCIAL PERFORMANCE

Overview

In the first three months of 2013, the Group delivered significantly improved profits on both an underlying and statutory basis. Returns in the core business improved and we saw the core loan book return to growth. We continued to reduce non-core assets in a capital-accretive way, and losses in the non-core business were significantly reduced. The Group's capital position was further improved and our liquidity position remains strong.

Significantly improved Group underlying and statutory profits

Group underlying profit before tax increased by GBP982 million to GBP1,479 million, driven by increased income, reduced costs and a further substantial reduction in impairment charges. The 3 per cent increase in underlying income to GBP4,889 million was principally driven by a GBP394 million gain relating to the sale of shares in St. James's Place. Excluding the gain, total underlying income fell 5 per cent year-on-year, but was broadly stable when compared with the previous quarter, despite further non-core reductions, as we saw encouraging signs of core lending growth, particularly in Commercial Banking. The 6 per cent reduction in total costs, compared to the first quarter of 2012, to GBP2,408 million was driven mainly by further savings from the Simplification programme. The 40 per cent reduction in impairments to GBP1,002 million was driven by further significant improvements in non-core.

Group statutory profit before tax increased by GBP1,760 million to GBP2,040 million, primarily driven by improved underlying profit and also by increased asset sales and positive insurance volatility.

The core business return on risk-weighted assets increased from 2.61 per cent to 3.20 per cent, driven by the 19 per cent increase in core underlying profit. Excluding the gain relating to the sale of shares in St. James's Place the return on risk-weighted assets was 2.53 per cent. Underlying income increased 7 per cent to GBP4,631 million, and net interest margin increased 2 basis points to 2.34 per cent. A further reduction in costs of 4 per cent was primarily through our Simplification initiatives. Although core impairment charges increased 19 per cent to GBP491 million, this was primarily attributable to releases in the Commercial Banking portfolio during the first quarter of 2012 which were not repeated in the first quarter of 2013.

In non-core, the underlying loss reduced 64 per cent to GBP392 million year-on-year, as result of a 59 per cent reduction in the impairment charge to GBP511 million, and an GBP82 million or 37 per cent reduction in total costs to GBP139 million.

Strong balance sheet

We delivered a further reduction of GBP6.3 billion in non-core assets, or GBP8.6 billion on a constant exchange rate basis. Together with the GBP5.7 billion increase in customer deposits, this resulted in an improvement in the Group loan to deposit ratio of 2 percentage points, to 119 per cent. The growth in deposits led to an improvement in the core loan to deposit ratio of 1 percentage point to 100 per cent. Wholesale funding reduced further, by GBP7.5 billion to GBP162.1 billion. As at 31 March 2013, our primary liquidity represented approximately 1.6 times our aggregate wholesale funding requirement of less than one year, and the strength of this buffer enabled us to repay GBP8 billion of our Long Term Refinancing Operation funding from the European Central Bank during the quarter.

Our improved profitability and further non-core asset reduction enabled us to strengthen the Group's capital position, increasing our core tier 1 capital ratio by 50 basis points to 12.5 per cent. Our estimated pro forma fully loaded CRD IV core tier 1 ratio was unchanged at 8.1 per cent, with underlying capital generation of 60 basis points offsetting the impact of the changes to pension accounting (IAS 19R) introduced with effect from 1 January this year.

FINANCIAL PERFORMANCE (continued)

Total underlying income

 
                                         Three        Three                Three 
                                        months       months               months 
                                         ended        ended                ended 
                                        31 Mar       31 Mar               31 Dec 
                                          2013         2012  Change         2012  Change 
                                   GBP million  GBP million       %  GBP million       % 
 
Net interest income                      2,553        2,633     (3)        2,545 
Other income                             2,422        2,203      10        2,040      19 
Insurance claims                          (86)        (108)      20         (30) 
                                   -----------  -----------          ----------- 
Total underlying income                  4,889        4,728       3        4,555       7 
                                   -----------  -----------          ----------- 
 
Banking net interest margin              1.96%        1.95%     1bp        1.94%     2bp 
Average interest-earning banking 
 assets                             GBP520.3bn   GBP558.8bn     (7)   GBP529.9bn     (2) 
Loan to deposit ratio                     119%         130%  (11)pp         121%   (2)pp 
 

Group underlying income was up 3 per cent at GBP4,889 million. Excluding the gain relating to the sale of shares in St. James's Place, which was included in other income, underlying income was down 5 per cent, but down only 1 per cent compared to the fourth quarter of 2012.

Group net interest income was 3 per cent lower compared to the same period in 2012 reflecting the 7 per cent reduction in average interest-earning assets partly offset by the underlying improvement in net interest margin. Net interest margin improved to 1.96 per cent driven by asset repricing which more than offset the income impact from the repositioning of the government bond portfolio and the run-off of the structural hedge.

Group other income was 10 per cent higher reflecting the gain relating to the sale of shares in St. James's Place. Excluding the gain, other income was broadly stable compared to the fourth quarter of 2012 but was 8 per cent lower than the first quarter of 2012.

Core underlying income

 
                                         Three        Three                Three 
                                        months       months               months 
                                         ended        ended                ended 
                                        31 Mar       31 Mar               31 Dec 
                                          2013         2012  Change         2012  Change 
                                   GBP million  GBP million       %  GBP million       % 
 
Net interest income                      2,452        2,450                2,487     (1) 
Other income                             2,265        1,999      13        1,932      17 
Insurance claims                          (86)        (108)      20         (30) 
                                   -----------  -----------          ----------- 
Total underlying income                  4,631        4,341       7        4,389       6 
                                   -----------  -----------          ----------- 
 
Banking net interest margin              2.34%        2.32%     2bp        2.33%     1bp 
Average interest-earning banking 
 assets                             GBP418.3bn   GBP429.7bn     (3)   GBP421.0bn     (1) 
Loan to deposit ratio                     100%         105%   (5)pp         101%   (1)pp 
 

Core net interest income was in line with the same period in 2012 as the impact of the 3 per cent reduction in average interest-earning assets over the year was offset by the improved net interest margin. The net interest margin improved as a result of asset repricing which offset the impact from the repositioning of the government bond portfolio.

Core other income was 13 per cent higher as a result of the gain relating to the sale of shares in St. James's Place. Excluding the gain, core other income was 3 per cent lower than the fourth quarter of 2012, with continued growth in Commercial Banking offset by lower insurance income, which in the fourth quarter of 2012 benefited from both assumption changes and lower insurance claims. The reduction since the first quarter of 2012 reflects the impact of the reduction in balance sheet on fees and commissions, reduced bancassurance income and the strong performance in sales and trading reported in the first quarter of 2012. We saw continued growth in core Commercial Banking other income in the first quarter of 2013.

FINANCIAL PERFORMANCE (continued)

Total costs

 
                                      Three        Three                Three 
                                     months       months               months 
                                      ended        ended                ended 
                                     31 Mar       31 Mar               31 Dec 
                                       2013         2012  Change         2012  Change 
                                GBP million  GBP million       %  GBP million       % 
 
Core                                  2,269        2,353       4        2,341       3 
Non-core                                139          221      37          246      43 
                                             -----------          ----------- 
Total costs                           2,408        2,574       6        2,587       7 
                                -----------  -----------          ----------- 
Simplification savings annual 
 run-rate                             1,007          352                  847      19 
 

Total costs decreased 6 per cent compared to the same period in 2012 mainly as a result of savings from the Simplification programme. We now expect costs to be around GBP9.6 billion for the full year 2013, compared to our previous guidance of GBP9.8 billion, reflecting a reduction of GBP0.1 billion from the deconsolidation of St. James's Place and further cost savings, and around GBP9.15 billion for the full year 2014, assuming a Verde IPO in mid 2014.

Core total costs reduced by 4 per cent mainly driven by the benefits of the Simplification programme, partly offset by inflationary pressures and increased investment in the business. Non-core costs have fallen due to the significant reduction in non-core business we have achieved over the year.

As at 31 March 2013, we had realised annual run-rate savings of GBP1,007 million from our initiatives to simplify the Group, an increase of GBP160 million since 31 December 2012 and GBP655 million since 31 March 2012, with the Simplification programme contributing cost savings of GBP282 million in the three months to 31 March 2013. We remain confident of achieving our target of GBP1.9 billion of annual run-rate cost savings by the end of 2014.

Impairment

 
                                    Three        Three                 Three 
                                   months       months                months 
                                    ended        ended                 ended 
                                   31 Mar       31 Mar                31 Dec 
                                     2013         2012   Change         2012  Change 
                              GBP million  GBP million        %  GBP million       % 
 
Core                                  491          412     (19)          568      14 
Non-core                              511        1,245       59          710      28 
                                           -----------           ----------- 
Total impairment                    1,002        1,657       40        1,278      22 
                              -----------  -----------           ----------- 
Impairment charge as a % of 
 average advances 
Core                                0.51%        0.36%     15bp        0.50%     1bp 
Non-core                            2.03%        3.71%  (168)bp        2.80%  (77)bp 
Total impairment                    0.80%        1.14%   (34)bp        0.96%  (16)bp 
 

The impairment charge was 40 per cent lower than the same period in 2012, continuing the improvement we saw in 2012. Impaired loans as a percentage of closing advances reduced to 8.0 per cent at 31 March 2013, from 8.6 per cent at 31 December 2012, driven by improvements in Commercial Banking, and Wealth, Asset Finance and International and reflecting reductions in both the core and non-core books. Provisions as a percentage of impaired loans increased from 48.2 per cent at 31 December 2012 to 51.0 per cent at 31 March 2013, with increases in both the core and non-core books.

Core impairment

The 19 per cent increase in core impairment charge in the quarter compared to the same period in 2012 was primarily attributable to releases in the Commercial Banking portfolio during the first quarter of 2012 which were not repeated in the first quarter of 2013. The 14 per cent decrease against the fourth quarter of 2012 reflects a significant reduction in Commercial Banking impairments. The impairment charge as a percentage of average advances in the core business at 0.51 per cent is within our long-term target for the Group as a whole of 50 to 60 basis points.

Non-core impairment

The non-core impairment charge decreased 59 per cent to GBP511 million compared to the same period in 2012, driven by substantial reductions in the Commercial Banking and International portfolios. The 28 per cent decrease against the fourth quarter of 2012 was again driven by reductions in Commercial Banking impairments.

FINANCIAL PERFORMANCE (continued)

Statutory profit

Statutory profit before tax was GBP2,040 million in the three months ended 31 March 2013. Further detail on the reconciliation of underlying to statutory results is included on page 15.

 
                                            Three        Three                Three 
                                           months       months               months 
                                            ended        ended                ended 
                                           31 Mar       31 Mar               31 Dec 
                                             2013      2012(1)  Change      2012(1)  Change 
                                      GBP million  GBP million       %  GBP million       % 
 
Underlying profit                           1,479          497     198          690     114 
Asset sales and volatile items: 
                                      -----------  -----------          ----------- 
    Asset sales(2)                            823          122                1,248    (34) 
    Liability management                     (87)          168                 (22) 
    Own debt volatility                      (19)        (184)      90           71 
    Other volatile items                    (101)         (15)                  140 
    Volatility arising in insurance 
     businesses                               462          169                   71 
    Fair value unwind                         (5)           30                  438 
                                      -----------  -----------          ----------- 
                                            1,073          290                1,946    (45) 
Simplification and Verde costs              (409)        (269)    (52)        (515)      21 
Legacy items: 
                                      -----------  -----------          ----------- 
    Payment protection insurance 
     provision                                  -        (375)              (1,500) 
    Other regulatory provisions                 -            -                (500) 
                                      -----------  -----------          ----------- 
                                                -        (375)              (2,000) 
Other items: 
                                      -----------  -----------          ----------- 
    Past service pensions credit                -          258                    - 
    Amortisation of purchased 
     intangibles                            (103)        (121)      15        (120)      14 
                                      -----------  -----------          ----------- 
                                            (103)          137                (120)      14 
Profit before tax - statutory               2,040          280                    1 
Taxation                                    (500)        (277)    (81)        (352)    (42) 
                                      -----------  -----------          ----------- 
Profit (loss) for the period                1,540            3                (351) 
                                      -----------  -----------          ----------- 
Earnings (loss) per share                    2.2p         0.0p    2.2p       (0.5)p    2.7p 
 
 
(1)  Restated to reflect the implementation of IAS 19R and IFRS 10. 
      See page 12. 
(2)  Net of associated fair value unwind of GBP1,309 million (Q1 2012: 
      GBP325 million). 
 

Asset sales

Asset sales in the quarter included gains on government securities of GBP776 million. The Group has now largely completed its actions to rebalance and reduce holdings afforded by the low yields on these securities. Also included are losses from asset sales of GBP1,262 million, principally relating to the run-down of the non-core portfolios, which have been more than offset by a related fair value unwind of GBP1,309 million.

Volatility arising in insurance businesses

The Group's statutory result before tax is affected by insurance volatility, caused by movements in financial markets, and policyholder interests volatility, which primarily reflects the gross up of policyholder tax included in the Group tax charge. In the first three months of 2013, the statutory result included GBP462 million of positive insurance and policyholder interests volatility (31 March 2012: GBP169 million), reflecting the rise in equity markets in the period.

Simplification and Verde costs

The costs of the Simplification programme in the first quarter of 2013 were GBP214 million, with a total of GBP1,075 million spent to date. These costs related to severance, IT and business costs of implementation. A further 1,890 FTE role reductions were announced in the first quarter of 2013, taking the total to 8,880 since the start of the programme. Verde costs in the first quarter of 2013 were GBP195 million and from inception to the end of March 2013 totalled GBP977 million.

FINANCIAL PERFORMANCE (continued)

Payment protection insurance provision

No further PPI provision has been taken in the first quarter of 2013. The volume of PPI complaints has continued to fall in line with expectations with average weekly complaints now at approximately 15,000, down 28 per cent on the last quarter and less than half the level experienced in the second quarter of 2012. Total costs incurred in the first quarter were GBP586 million, including approximately GBP180 million of related administration costs. Costs in the first half will now be marginally higher than expected due to the acceleration of the settlement of cases currently held with the Financial Ombudsman Service and one off VAT payments. As previously forecast we continue to expect monthly costs to decline in the second half of the year.

Taxation

The tax charge for the first three months of 2013 was GBP500 million. This reflects a marginally higher effective tax rate than the UK statutory rate primarily due to a policyholder tax charge, which is partially offset by exempt gains or gains covered by capital losses.

Balance sheet

Funding and liquidity

The Group loan to deposit ratio has improved from 121 per cent at 31 December 2012 to 119 per cent. The core loan to deposit ratio improved to 100 per cent from 101 per cent at 31 December 2012.

 
                                                At          At 
                                            31 Mar      31 Dec  Change 
                                              2013        2012       % 
 
Funded assets                           GBP528.8bn  GBP535.4bn     (1) 
Non-core assets                          GBP92.1bn   GBP98.4bn     (6) 
Customer deposits(1)                    GBP428.2bn  GBP422.5bn       1 
Wholesale funding                       GBP162.1bn  GBP169.6bn     (4) 
Wholesale funding <1 year maturity       GBP50.9bn   GBP50.6bn       1 
Of which money-market funding <1 year 
 maturity                                GBP30.6bn   GBP31.0bn     (1) 
Wholesale funding <1 year maturity as 
 a % of total wholesale funding              31.4%       29.8%   1.6pp 
Loan to deposit ratio(2)                      119%        121%   (2)pp 
Core loan to deposit ratio(2)                 100%        101%   (1)pp 
Primary liquid assets                    GBP81.3bn   GBP87.6bn     (7) 
Secondary liquidity                     GBP113.3bn  GBP117.1bn     (3) 
 
 
(1)  Excluding repos of GBP3.0 billion (31 December 2012: GBP4.4 billion) 
      (all core). 
(2)  Loans and advances to customers excluding reverse repos divided 
      by customer deposits excluding repos. 
 

In the first three months of 2013, we further reduced our non-core portfolio by GBP6.3 billion to GBP92.1 billion. The reductions included GBP3 billion in treasury assets and GBP2 billion in UK commercial real estate and reductions in Ireland, Asset Finance, Acquisition Finance and Shipping. They continue to be managed in a capital efficient manner, and were capital-accretive. In addition, in April we agreed the sale of our Spanish retail operations which will lead to a further reduction of GBP1.5 billion in non-core assets.

Customer deposits increased 1 per cent in the first quarter of 2013, primarily driven by higher deposits in Retail and growth in Transaction Banking in Commercial Banking.

Wholesale funding has reduced by 4 per cent since 31 December 2012 to GBP162.1 billion. Our short-term wholesale funding remained stable at GBP50.9 billion (31 December 2012: GBP50.6 billion). Wholesale funding with a maturity of less than one year at 31 March 2013 was 31.4 per cent, compared to 29.8 per cent at 31 December 2012.

FINANCIAL PERFORMANCE (continued)

Our liquidity position remains strong, with primary liquid assets of GBP81.3 billion at 31 March 2013 (31 December 2012: GBP87.6 billion). The reduction of non-core assets combined with continued growth in customer deposits has enabled a further reduction in wholesale funding and the repayment of GBP8 billion of our Long Term Refinancing Operation funding from the European Central Bank. Primary liquid assets represent approximately 2.5 times our money-market funding and are approximately 1.6 times our aggregate wholesale funding with a maturity of less than one year, providing a substantial buffer in the event of market dislocation. In addition to primary liquid assets, we have significant secondary liquidity holdings of GBP113.3 billion. Our total liquid assets represent approximately 3.8 times our aggregate wholesale funding with a maturity of less than one year.

Risk-weighted assets and capital ratios

 
                                               At          At 
                                           31 Mar      31 Dec   Change 
                                             2013        2012        % 
 
Risk-weighted assets(1)                GBP302.5bn  GBP310.3bn      (3) 
Non-core risk-weighted assets           GBP65.6bn   GBP72.9bn     (10) 
Core tier 1 capital ratio(1)                12.5%       12.0%    0.5pp 
Tier 1 capital ratio(1)                     12.6%       13.8%  (1.2)pp 
Total capital ratio(1)                      17.8%       17.3%    0.5pp 
Estimated pro forma fully loaded CRD 
 IV core tier 1 ratio(1)                     8.1%        8.1% 
 
 
(1)  31 December 2012 comparatives have not been restated to reflect 
      the implementation of IAS 19R and IFRS10. 
 

The Group's core tier 1 capital ratio increased to 12.5 per cent at the end of March 2013 from 12.0 per cent at the end of December 2012, principally driven by a reduction in risk-weighted assets, underlying profit including the gain relating to the sale of shares in St. James's Place, and the gain on sale of government bonds partially offset by tax and the adverse impact of GBP1.2 billion from the implementation of pension accounting changes (IAS 19R).

The Group's estimated pro forma fully loaded CRD IV core tier 1 ratio was unchanged at 8.1 per cent. The 60 basis points adverse impact of the pension scheme accounting changes has been offset by reduced risk-weighted assets and trading profits and also reflects the GBP350 million issuance of share capital. The Group expects this ratio to improve through the rest of 2013 and into 2014, based on underlying performance and anticipated management actions, and we expect our estimated pro forma fully loaded CRD IV core tier 1 ratio to be above 9 per cent by the end of 2013 and above 10 per cent by the end of 2014.

The estimated pro forma fully loaded CRD IV core tier 1 ratio reflects estimates of the impact of the rules laid out in the latest draft of CRD IV published by the European Commission.

The Group has a strong capital position. Whilst the Bank of England's Financial Policy Committee (FPC) has stated that major UK banks and building societies had an aggregate capital shortfall at end 2012 of around GBP25 billion, the Group is awaiting the outcome of the consideration of the FPC's recommendations by the Prudential Regulatory Authority Board. Given our strongly capital generative core business and continued progress in increasing capital and reducing risk through non-core asset disposals, we continue to be confident in our capital position.

STATUTORY CONSOLIDATED INCOME STATEMENT (UNAUDITED)

 
                                               Three        Three        Three 
                                              months       months       months 
                                               ended        ended        ended 
                                              31 Mar       31 Mar       31 Dec 
                                                2013      2012(1)      2012(1) 
                                         GBP million  GBP million  GBP million 
 
Interest and similar income                    5,383        6,075        5,632 
Interest and similar expense                 (4,926)      (4,787)      (3,412) 
                                         -----------  -----------  ----------- 
Net interest income                              457        1,288        2,220 
                                         -----------  -----------  ----------- 
Fee and commission income                      1,158        1,171        1,115 
Fee and commission expense                     (405)        (407)        (356) 
                                         -----------  -----------  ----------- 
Net fee and commission income                    753          764          759 
Net trading income                            12,893        6,716        3,985 
Insurance premium income                       2,105        2,100        2,069 
Other operating income                         1,858        1,011        2,171 
                                         -----------  -----------  ----------- 
Other income                                  17,609       10,591        8,984 
                                         -----------  -----------  ----------- 
Total income                                  18,066       11,879       11,204 
Insurance claims                            (12,167)      (6,998)      (4,595) 
                                         -----------  -----------  ----------- 
Total income, net of insurance claims          5,899        4,881        6,609 
                                         -----------  -----------  ----------- 
Regulatory provisions                              -        (375)      (1,950) 
Other operating expenses                     (3,000)      (2,771)      (3,287) 
                                         -----------  -----------  ----------- 
Total operating expenses                     (3,000)      (3,146)      (5,237) 
                                         -----------  -----------  ----------- 
Trading surplus                                2,899        1,735        1,372 
Impairment                                     (859)      (1,455)      (1,371) 
                                                      -----------  ----------- 
Profit before tax                              2,040          280            1 
Taxation                                       (500)        (277)        (352) 
                                         -----------  -----------  ----------- 
Profit (loss) for the period                   1,540            3        (351) 
                                         -----------  -----------  ----------- 
 
Profit attributable to non-controlling 
 interests                                        15            8           33 
Profit (loss) attributable to equity 
 shareholders                                  1,525          (5)        (384) 
                                         -----------  -----------  ----------- 
Profit (loss) for the period                   1,540            3        (351) 
                                         -----------  -----------  ----------- 
Basic earnings (loss) per share                 2.2p         0.0p       (0.5)p 
Diluted earnings (loss) per share               2.2p         0.0p       (0.5)p 
 
 
(1)  Restated to reflect the implementation of IAS 19R and IFRS 10. 
      See below. 
 

Restatements to reflect new accounting standards effective from 1 January 2013

Comparative financial information has been restated following the adoption of the following new accounting standards effective from 1 January 2013:

Amendments to IAS 19 Employee Benefits (IAS 19R). The main change is that actuarial gains and losses in respect of defined benefit pension schemes are no longer permitted to be deferred using the corridor approach and must be recognised immediately in other comprehensive income. In addition, IAS 19R requires a net interest amount to be calculated by applying the discount rate to the net defined benefit liability or asset, in place of the interest cost on scheme liabilities and the expected return on scheme assets. The effect of applying this amended standard at 1 January 2013 was the recognition of previously unrecognised actuarial losses of GBP2.7 billion and deferred tax assets of GBP0.6 billion, leading to a reduction in shareholders' equity of GBP2.1 billion. The changes to the calculation of the income statement charge have decreased profit after tax for Q1 2013 by GBP1 million (Q1 2012: GBP10 million).

IFRS 10 Consolidated Financial Statements. This new standard establishes the principles to determine whether one entity controls another; where such control exists the controlling entity is required to consolidate the other entity in its financial statements. The adoption of IFRS 10 has required the Group to consolidate certain entities that were previously not consolidated and deconsolidate certain entities that were previously consolidated. The effect of applying IFRS 10 at 1 January 2013 was to recognise an increase in total assets and total liabilities of GBP10.2 billion with no resulting change in shareholders' equity and no impact on profit after tax for Q1 2013 (Q1 2012: GBPnil).

SUMMARY CONSOLIDATED BALANCE SHEET (UNAUDITED)

 
                                                            At           At 
                                                        31 Mar       31 Dec 
                                                          2013      2012(1) 
Assets                                             GBP million  GBP million 
 
Cash and balances at central banks                      67,131       80,298 
Trading and other financial assets at fair value 
 through profit or loss                                135,801      160,620 
Derivative financial instruments                        55,490       56,557 
Loans and receivables: 
                                                   -----------  ----------- 
    Loans and advances to banks                         32,003       32,757 
    Loans and advances to customers                    512,027      517,225 
    Debt securities                                      3,638        5,273 
                                                   -----------  ----------- 
                                                       547,668      555,255 
Available-for-sale financial assets                     32,008       31,374 
Other assets                                            59,429       50,117 
                                                   -----------  ----------- 
Total assets                                           897,527      934,221 
                                                   -----------  ----------- 
 
 
Liabilities 
Deposits from banks                                  19,640   38,405 
Customer deposits                                   431,156  426,912 
Trading and other financial liabilities at fair 
 value through profit or loss                        38,302   33,392 
Derivative financial instruments                     47,505   48,676 
Debt securities in issue                            111,414  117,253 
Liabilities arising from insurance and investment 
 contracts                                          115,563  137,592 
Subordinated liabilities                             34,008   34,092 
Other liabilities                                    56,458   55,318 
                                                    -------  ------- 
Total liabilities                                   854,046  891,640 
                                                    -------  ------- 
 
Total equity                                         43,481   42,581 
                                                    -------  ------- 
Total equity and liabilities                        897,527  934,221 
                                                    -------  ------- 
 
 
(1)  Restated to reflect the implementation of IAS 19R and IFRS 10. 
      See page 12. 
 

APPENDIX 1

QUARTERLY UNDERLYING BASIS INFORMATION

 
                                     Quarter      Quarter      Quarter      Quarter      Quarter 
                                       ended        ended        ended        ended        ended 
                                      31 Mar       31 Dec      30 Sept      30 June       31 Mar 
Group                                   2013      2012(1)      2012(1)      2012(1)      2012(1) 
                                 GBP million  GBP million  GBP million  GBP million  GBP million 
 
Net interest income                    2,553        2,545        2,575        2,582        2,633 
Other income                           2,422        2,040        2,112        2,061        2,203 
Insurance claims                        (86)         (30)        (102)        (125)        (108) 
                                 -----------  -----------  -----------  -----------  ----------- 
Total underlying income                4,889        4,555        4,585        4,518        4,728 
Total costs                          (2,408)      (2,587)      (2,492)      (2,471)      (2,574) 
Impairment                           (1,002)      (1,278)      (1,262)      (1,500)      (1,657) 
                                 -----------  -----------  -----------  -----------  ----------- 
Underlying profit                      1,479          690          831          547          497 
                                 -----------  -----------  -----------  -----------  ----------- 
 
Banking net interest margin            1.96%        1.94%        1.93%        1.91%        1.95% 
Impairment charge as a % of 
 average advances                      0.80%        0.96%        0.93%        1.05%        1.14% 
Return on risk-weighted assets         1.96%        0.87%        1.01%        0.65%        0.57% 
 
 
(1)  Restated to reflect the implementation of IAS 19R and IFRS 10. 
      See page 12. 
 
 
                                     Quarter      Quarter      Quarter      Quarter      Quarter 
                                       ended        ended        ended        ended        ended 
                                      31 Mar       31 Dec      30 Sept      30 June       31 Mar 
Core                                    2013      2012(1)      2012(1)      2012(1)      2012(1) 
                                 GBP million  GBP million  GBP million  GBP million  GBP million 
 
Net interest income                    2,452        2,487        2,459        2,472        2,450 
Other income                           2,265        1,932        1,963        1,888        1,999 
Insurance claims                        (86)         (30)        (102)        (125)        (108) 
                                 -----------  -----------  -----------  -----------  ----------- 
Total underlying income                4,631        4,389        4,320        4,235        4,341 
Total costs                          (2,269)      (2,341)      (2,246)      (2,314)      (2,353) 
Impairment                             (491)        (568)        (373)        (566)        (412) 
                                 -----------  -----------  -----------  -----------  ----------- 
Underlying profit                      1,871        1,480        1,701        1,355        1,576 
                                 -----------  -----------  -----------  -----------  ----------- 
 
Banking net interest margin            2.34%        2.33%        2.32%        2.32%        2.32% 
Impairment charge as a % of 
 average advances                      0.51%        0.50%        0.36%        0.52%        0.36% 
Return on risk-weighted assets         3.20%        2.47%        2.83%        2.26%        2.61% 
 
 
(1)  Restated to reflect the implementation of IAS 19R and IFRS 10. 
      See page 12. 
 
 
                                  Quarter      Quarter      Quarter      Quarter      Quarter 
                                    ended        ended        ended        ended        ended 
                                   31 Mar       31 Dec      30 Sept      30 June       31 Mar 
Non-core                             2013         2012         2012         2012         2012 
                              GBP million  GBP million  GBP million  GBP million  GBP million 
 
Net interest income                   101           58          116          110          183 
Other income                          157          108          149          173          204 
Insurance claims                        -            -            -            -            - 
                              -----------  -----------  -----------  -----------  ----------- 
Total underlying income               258          166          265          283          387 
Total costs                         (139)        (246)        (246)        (157)        (221) 
Impairment                          (511)        (710)        (889)        (934)      (1,245) 
                              -----------  -----------  -----------  -----------  ----------- 
Underlying loss                     (392)        (790)        (870)        (808)      (1,079) 
                              -----------  -----------  -----------  -----------  ----------- 
 
Banking net interest margin         0.44%        0.37%        0.49%        0.50%        0.70% 
Impairment charge as a % of 
 average advances                   2.03%        2.80%        3.08%        2.88%        3.71% 
 

APPENDIX 2

BASIS OF PREPARATION OF UNDERLYING BASIS INFORMATION

The tables below set out a reconciliation from the published statutory results to the underlying basis results:

 
                                                       Removal of: 
                             --------------------------------------------------------------- 
                             Acquisition   Volatility 
                     Lloyds      related      arising                      Legal 
Three months        Banking          and           in  Insurance             and 
 ended                Group        other    insurance      gross      regulatory  Fair value  Underlying 
 31 March 2013    statutory     items(1)   businesses         up   provisions(2)      unwind       basis 
                       GBPm         GBPm         GBPm       GBPm            GBPm        GBPm        GBPm 
 
Net interest 
 income                 457         (39)            -      1,975               -         160       2,553 
Other income         17,609        (598)        (462)   (14,115)               -        (12)       2,422 
Insurance 
 claims            (12,167)            -            -     12,081               -           -        (86) 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
Total 
 underlying 
 income               5,899        (637)        (462)       (59)               -         148       4,889 
Operating 
 expenses(3)        (3,000)          512            -         59               -          21     (2,408) 
Impairment            (859)           21            -          -               -       (164)     (1,002) 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
Profit (loss)         2,040        (104)        (462)          -               -           5       1,479 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
 
 
 
                                                       Removal of: 
                             --------------------------------------------------------------- 
                             Acquisition   Volatility 
Three months         Lloyds      related      arising                      Legal 
 ended              Banking          and           in  Insurance             and 
 31 December          Group        other    insurance      gross      regulatory  Fair value  Underlying 
 2012(4)          statutory     items(1)   businesses         up   provisions(2)      unwind       basis 
                       GBPm         GBPm         GBPm       GBPm            GBPm        GBPm        GBPm 
 
Net interest 
 income               2,220        (119)            1        670               -       (227)       2,545 
Other income          8,984      (1,638)         (72)    (5,281)              50         (3)       2,040 
Insurance 
 claims             (4,595)            -            -      4,565               -           -        (30) 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
Total 
 underlying 
 income               6,609      (1,757)         (71)       (46)              50       (230)       4,555 
Operating 
 expenses(3)        (5,237)          635            -         46           1,950          19     (2,587) 
Impairment          (1,371)          320            -          -               -       (227)     (1,278) 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
Profit (loss)             1        (802)         (71)          -           2,000       (438)         690 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
 
 
 
                                                       Removal of: 
                             --------------------------------------------------------------- 
                             Acquisition   Volatility 
Three months         Lloyds      related      arising                      Legal 
ended               Banking          and           in  Insurance             and 
31 March              Group        other    insurance      gross      regulatory  Fair value  Underlying 
2012(4)           statutory     items(1)   businesses         up   provisions(2)      unwind       basis 
                       GBPm         GBPm         GBPm       GBPm            GBPm        GBPm        GBPm 
 
Net interest 
 income               1,288        (107)          (3)      1,240               -         215       2,633 
Other income         10,591           16        (166)    (8,176)               -        (62)       2,203 
Insurance 
 claims             (6,998)            -            -      6,890               -           -       (108) 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
Total 
 underlying 
 income               4,881         (91)        (169)       (46)               -         153       4,728 
Operating 
 expenses(3)        (3,146)          132            -         46             375          19     (2,574) 
Impairment          (1,455)            -            -          -               -       (202)     (1,657) 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
Profit (loss)           280           41        (169)          -             375        (30)         497 
                 ----------  -----------  -----------  ---------  --------------  ----------  ---------- 
 
 
 
(1)  Comprises the effects of asset sales (Q1 2013: gain of GBP823 million; 
      Q4 2012: gain of GBP1,248 million; Q1 2012: gain of GBP122 million), 
      volatile items (Q1 2013: loss of GBP120 million; Q4 2012: gain 
      of GBP211 million; Q1 2012: loss of GBP199 million), liability 
      management (Q1 2013: loss of GBP87 million; Q4 2012: loss of GBP22 
      million; Q1 2012: gain of GBP168 million), Simplification costs 
      related to severance, IT and business costs of implementation (Q1 
      2013: GBP214 million; Q4 2012: GBP344 million; Q1 2012: GBP161 
      million), Verde costs (Q1 2013: GBP195 million; Q4 2012: GBP171 
      million; Q1 2012: GBP108 million); the amortisation of purchased 
      intangibles (Q1 2013: GBP103 million; Q4 2012: GBP120 million; 
      Q1 2012: GBP121 million) and the past service pensions credit (Q1 
      2013: GBPnil; Q4 2012: GBPnil; Q1 2012: GBP258 million). 
(2)  Comprises the payment protection insurance provision (Q1 2013: 
      GBPnil; Q4 2012: GBP1,500 million; Q1 2012 GBP375 million) and 
      other regulatory provisions (Q1 2013: GBPnil; Q4 2012: GBP500 million; 
      Q1 2012: GBPnil). 
(3)  On an underlying basis this is described as total costs. 
(4)  Restated to reflect the implementation of IAS 19R and IFRS 10. 
      See page 12. 
 

APPENDIX 3

EXPOSURES TO EUROZONE COUNTRIES

The following section summarises the Group's direct exposure to certain European countries. The exposures comprise on-balance sheet exposures based on their balance sheet carrying values and off-balance sheet exposures, and are based on the country of domicile of the counterparty, other than asset-backed securities which are based on the location of the underlying assets.

The Group manages its exposures to individual countries through authorised country limits which take into account economic, financial, political and social factors. In addition, the Group manages its direct risks to the selected countries by establishing and monitoring risk limits for individual banks, financial institutions and corporates. We take into account indirect risk, where we have determined that our counterparties have material direct exposures to the selected countries.

The profiles of banks, financial institutions and corporates are monitored on a regular basis and exposures managed accordingly.

The Group Financial Stability Forum has been established in order to monitor developments within the Eurozone, carry out stress testing through detailed scenario analysis and complete appropriate due diligence on the Group's exposures.

The following table summarises exposures to Ireland, Spain, Portugal, Italy and Greece by type of counterparty:

 
                   Sovereign debt 
                 ------------------ 
                                        Financial 
                                       institutions 
                               Cash 
                   Direct        at                         Asset 
                sovereign   central                        backed                       Insurance 
                exposures     banks    Banks   Other   securities  Corporate  Personal     assets   Total 
At 31 March 
 2013                GBPm      GBPm     GBPm    GBPm         GBPm       GBPm      GBPm       GBPm    GBPm 
 
Ireland                 -         -       95     748          314      6,057     5,689        115  13,018 
Spain                   7        17      546       1           35      2,209     1,492         21   4,328 
Portugal                -         -      123       3          205        185        10          -     526 
Italy                   5         -       66       3           11        150         -         36     271 
Greece                  -         -        -       -            -        166         -          -     166 
                       12        17      830     755          565      8,767     7,191        172  18,309 
                  -------  --------  -------  ------  -----------  ---------  --------  ---------  ------ 
At 31 December 
 2012 
 
Ireland                 -         -      115     644          305      5,972     5,559        111  12,706 
Spain                   5        14    1,170       7          132      2,110     1,472         25   4,935 
Portugal                -         -      118       -          224        187        10          -     539 
Italy                   5         -       44       -           10        150         -         37     246 
Greece                  -         -        -       -            -        277         -          -     277 
                       10        14    1,447     651          671      8,696     7,041        173  18,703 
                  -------  --------  -------  ------  -----------  ---------  --------  ---------  ------ 
 

The Group continued to reduce its exposure to these countries and underlying exposures have been proactively managed down in line with its risk appetite. The Group's total exposure has reduced 2 per cent from GBP18,703 million to GBP18,309 million. On a constant currency basis, the Group's total exposure reduced by 6 per cent in the period. Total exposures to Ireland have increased in the period but when exchange rate movements are excluded, underlying total Euro exposures in Ireland have continued to fall.

On 29 April 2013 the Group announced the sale of its Retail Banking operations in Spain. The business being sold consists mostly of retail mortgages and deposits and its sale will further reduce the Group's exposure to Spain by around GBP1.5 billion. The Group's Spanish corporate banking operations, serving business clients, are not included in the transaction.

EXPOSURES TO EUROZONE COUNTRIES (continued)

Exposures to other Eurozone countries

In addition to the exposures detailed above, the Group has the following exposures to sovereigns, financial institutions, asset-backed securities, corporates and personal customers in the following Eurozone countries:

 
                  Sovereign debt 
                 ----------------- 
                                       Financial 
                                      institutions 
                              Cash 
                  Direct        at                         Asset 
               sovereign   central                        backed                       Insurance 
               exposures     banks    Banks   Other   securities  Corporate  Personal     assets   Total 
At 31 March 
 2013               GBPm      GBPm     GBPm    GBPm         GBPm       GBPm      GBPm       GBPm    GBPm 
 
Netherlands            -    17,777    1,017       5          281      2,627     5,756      1,147  28,610 
Germany              352     1,871      664     199          319      1,849         -      1,162   6,416 
France                 -         -    1,297      32           80      3,210       294      1,300   6,213 
Luxembourg             -         -        9   1,256            -      1,515         -        192   2,972 
Belgium                8         -      482      25            -        787         -         55   1,357 
Finland                -         -        1       -            -         24         -        250     275 
Austria                -         -        6       1            -        150         -          -     157 
Malta                  -         -        -       -            -        101         -          -     101 
Cyprus                 -         -        -       -            -         35         -          -      35 
Slovenia               1         -       30       -            -          -         -          -      31 
Estonia                -         -        -       -            -          2         -          -       2 
Slovakia               -         -        -       -            -          -         -          -       - 
                  ------  --------  -------  ------  -----------  ---------  --------  ---------  ------ 
                     361    19,648    3,506   1,518          680     10,300     6,050      4,106  46,169 
                  ------ 
At 31 December 
 2012 
 
Netherlands            1    33,232      478       2          268      2,207     5,649        977  42,814 
Germany              284     1,809      389     414          400      2,117         -        977   6,390 
France                 6         -      853       -           77      3,226       312      1,457   5,931 
Luxembourg             -         2        -     834            -      1,841         -         71   2,748 
Belgium                -         -      309      25            -        568         -         64     966 
Finland                -         -       16       -            -         43         -        214     273 
Austria                -         -        3       -            -         73         -          -      76 
Malta                  -         -        -       -            -        218         -          -     218 
Cyprus                 -         -        2       -            -        102         -          -     104 
Slovenia               -         -       35       -            -          -         -          -      35 
Estonia                -         -        -       -            -          2         -          -       2 
Slovakia               -         -        -       -            -          -         -          -       - 
                  ------  --------  -------  ------  -----------  ---------  --------  ---------  ------ 
                     291    35,043    2,085   1,275          745     10,397     5,961      3,760  59,557 
                  ------  --------  -------  ------  -----------  ---------  --------  ---------  ------ 
 

Total balances with other Eurozone countries have decreased from GBP59,557 million to GBP46,169 million. This is primarily due to a decrease in Dutch central bank balances. Derivatives with sovereigns and sovereign referenced credit default swaps are insignificant.

CONTACTS

For further information please contact:

INVESTORS AND ANALYSTS

Charles King

Investor Relations Director

020 7356 3537

charles.king@finance.lloydsbanking.com

CORPORATE AFFAIRS

Matthew Young

Group Corporate Affairs Director

020 7356 2231

matt.young@lloydsbanking.com

Ed Petter

Group Media Relations Director

020 8936 5655

ed.petter@lloydsbanking.com

Copies of this interim management statement may be obtained from Investor Relations, Lloyds Banking Group plc, 25 Gresham Street, London EC2V 7HN. The statement can also be found on the Group's website - www.lloydsbankinggroup.com.

Registered office: Lloyds Banking Group plc, The Mound, Edinburgh EH1 1YZ

Registered in Scotland no. SC95000

This information is provided by RNS

The company news service from the London Stock Exchange

END

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